Small Business

The Death of Manufacturing?


By Lisa Bergson "Manufacturing is dead here," declares the blasmoderator of a Center City forum in Philadelphia called Selling Overseas, where I recently served as a panelist. I was taken aback by her glib assertion, which seems to be the conventional wisdom these days. Venture capitalists and local government officials have jumped on the latest bandwagons, chasing opportunities in biotech and information technology. In so doing, however, they ignore a sector where we still have considerable competitive advantages, not to mention a solid tax base and proven potential for job creation, meaningful work, and long-term community stability.

Of course, not everyone has given up on manufacturing. Joe Houldin, the dedicated CEO of the Delaware Valley Industrial Resource Center (DVIRC), cherishes the memory of his father, a factory worker, "who raised us with a sense of dignity and aspiration." Locally, Joe leads the battle to preserve and develop our local manufacturing base. Funded by the state and federal government to help us become more efficient and competitive, the DVIRC has had considerable success. Indeed, the most recent numbers from the Philly Federal Reserve show continued expansion in the sector.

Joe points to our local heritage as the key to our success. By contrast, he states, "Other parts of the country that build their economies around high-volume manufacturing have been decimated by the shift overseas. Here, we have a tradition of small, specialized niche businesses." He equates our micro-economy to "the colonial era or the beginning of the industrial revolution."

As a maker of highly technical analytical equipment, I identify. So does my friend, Gary Porter, who founded Porter Instruments in 1968. With 215 Philly-based employees, Porter makes flow and pressure controllers for medical, semiconductor, and analytical equipment companies. "We manufacture for manufacturers," Gary says. Like me, he is a second-generation equipment-maker, carrying on a tradition of craftsmanship and innovation.

TECHNOLOGY'S EDGE. Overall, Joe is optimistic about our prospects. "We're a very high-cost region and we want to stay that way. If we can maintain our high-valued added, low volume, niche businesses, we'll be well positioned," he continues. "If we do things right, we're going to kick butt." But that's a big if. To prosper, we must remain innovative, continue to invest in our operations, attract skilled employees, and target healthy markets. Even with DVIRC support -- itself under threat of government cuts -- any misstep could prove fatal.

When it comes to advanced technology, for example, we still have an edge. But, from what I'm seeing, we are not fostering the scientific expertise to remain on top. When we advertise for scientists, the best applicants generally come from China, and, unlike past generations of immigrants, they may or may not intend to make a long-term home here.

Meanwhile, on the factory floor, I fear that the present generation may be the end of the assembly line. With all the layoffs and off-shoring, manufacturing no longer appeals to many adults weighing their options. Even Joe, who's working on a manufacturing curriculum with area colleges, concedes, "The success we have with education requires enrollment." He plans a major public-relations campaign to lure kids into production, but I have to say none of my production employees wish for their children to follow in their footsteps.

NOT YOUR FATHER'S JOB. "I love to make things and see them work," a gaunt, recently retired 15-year employee, Scotty Edwards, tells me over lunch at TGI Fridays. "But I'm glad my kids went into something more secure." (Scotty's son is a chef, and his daughter is getting her doctorate in biochemistry.) As he puts it, "They're in professions we'll always need."

"Food and drugs," I quip.

"You should drive around our industrial park one morning, and see how many cars are parked there," he observes, as usual barely touching his meal. "There have been a lot of layoffs." Indeed, since 1970, our overall area has lost 150,000 jobs, with the pace accelerating. Businesses survive and even grow, but they don't require the workforces they once did.

While trying to preserve as many jobs as possible, I've cut back too. Lately, with the uptick in our principal market, the semiconductor industry, we're starting to see increased activity. But, four-day work weeks and pay cuts are still the norm, with no funds for badly needed training, new hires, facility improvements, or updated systems and equipment. That takes a toll. As Gary from Porter Instruments puts it, "Once you're in manufacturing, you've got to stay current with techniques." His company has spent $3 million on new equipment over the past four years.

SHRINKING MARGINS. Unlike Gary, it looks like I made a bad bet, spending even more than that on innovation. In the absence of third-party or significant government support, we drained our resources to develop our present cutting-edge laser-based technology. Now, our success at gaining market acceptance is undermined by vicious price-cutting by other American competitors selling into Asia. "Bloodbath" is the term widely used among Western semiconductor industry suppliers vying for business in China and Taiwan these days.

To compete, we're under pressure to cut prices, thereby cutting margins, which reduces our ability to invest in new technology and efficiency improvements, ultimately making us less competitive. As an individual Mid-Atlantic manufacturer, I'm relying on spirit, agility, and sheer will to see us through. Whether we'll make it depends on our ability to generate enough volume to compensate for lower margins. Subtract "high-value added" and Joe's equation doesn't add up. While far from extinct, we just might be on the endangered species list after all. Lisa Bergson is president and CEO of both MEECO and Tiger Optics. Before joining MEECO in 1983, she was a business journalist at BusinessWeek and freelanced for many business publications. You can visit her companies' Web sites at www.meeco.com and www.tigeroptics.com, or contact her at lbergson@meeco.com


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